##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2006
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from  to
  BELDEN & BLAKE CORPORATION
  Ohio
    
    34-1686642(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)First City Tower1001 Fannin Street, Suite 800Houston, Texas
    
    77002(Address of principal executive offices)
    
    (Zip Code)
  
   
  þ o
  o o þ
 o þ




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PagePART I Financial InformationItem 1. Financial Statements (unaudited)Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    1Consolidated Statements of Operations:Three and six months ended June 30, 2006 (Successor Company)Three and six months ended June 30, 2005 (Predecessor Company)
    
    
    2Consolidated Statements of Cash Flows:Six months ended June 30, 2006 (Successor Company)Six months ended June 30, 2005 (Predecessor Company)
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.     Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    7Item 3.     Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4.     Controls and Procedures
    
    
    19PART II Other InformationItem 1.     Legal Proceedings
    
    
    19Item 1A. Risk Factors.
    
    
    19Item 4.     Submission of Matters to a Vote of Security Holders
    
    
    19Item 6.     Exhibits
    
    
    20




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 BELDEN & BLAKE CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    8,681
    
    
    $
    8,172Accounts receivable, net
    
    
    17,503
    
    
    
    25,225Inventories
    
    
    778
    
    
    
    1,085Deferred income taxes
    
    
    16,188
    
    
    
    25,752Other current assets
    
    
    198
    
    
    
    349Assets held for sale
    
    
    3,646
    
    
    
    Fair value of derivatives
    
    
    481
    
    
    
    174Total current assets
    
    
    47,475
    
    
    
    60,757Property and equipment, at costOil and gas properties (successful efforts method)
    
    
    680,689
    
    
    
    661,094Gas gathering systems
    
    
    1,293
    
    
    
    1,593Land, buildings, machinery and equipment
    
    
    3,057
    
    
    
    6,795685,039
    
    
    
    669,482Less accumulated depreciation, depletion and amortization
    
    
    32,952
    
    
    
    14,456Property and equipment, net
    
    
    652,087
    
    
    
    655,026Goodwill
    
    
    91,443
    
    
    
    91,443Fair value of derivatives
    
    
    533
    
    
    
    285Other assets
    
    
    2,414
    
    
    
    2,607$
    793,952
    
    
    $
    810,118LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    7,595
    
    
    $
    5,314Accrued expenses
    
    
    24,127
    
    
    
    28,496Current portion of long-term liabilities
    
    
    759
    
    
    
    776Fair value of derivatives
    
    
    41,372
    
    
    
    65,170Total current liabilities
    
    
    73,853
    
    
    
    99,756Long-term liabilitiesBank and other long-term debt
    
    
    88,558
    
    
    
    52,085Senior secured notes
    
    
    165,514
    
    
    
    200,340Subordinated promissory note  related party
    
    
    25,000
    
    
    
    25,000Asset retirement obligations and other long-term liabilities
    
    
    20,080
    
    
    
    18,919Fair value of derivatives
    
    
    208,292
    
    
    
    240,129Deferred income taxes
    
    
    98,810
    
    
    
    84,490Total long-term liabilities
    
    
    606,254
    
    
    
    620,963Shareholders equityCommon stock: without par value; 3,000 shares authorized and
1,534 shares issued
    
    
    
    
    
    
    Paid in capital
    
    
    125,000
    
    
    
    125,000Retained earnings
    
    
    7,194
    
    
    
    9,063Accumulated other comprehensive loss
    
    
    (18,349
    )
    
    
    (44,664
    )Total shareholders equity
    
    
    113,845
    
    
    
    89,399$
    793,952
    
    
    $
    810,118
  1




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##### 



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
 Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorCompany
    
    
    
    Company
    
    
    Company
    
    
    
    CompanyThree months
    
    
    
    Three months
    
    
    Six months
    
    
    
    Six monthsended June 30,
    
    
    
    ended June 30,
    
    
    ended June 30,
    
    
    
    ended June 30,2006
    
    
    
    2005
    
    
    2006
    
    
    
    2005RevenuesOil and gas sales
    
    $
    36,212
    
    
    
    $
    27,999
    
    
    $
    77,150
    
    
    
    $
    55,920Gas gathering and marketing
    
    
    2,254
    
    
    
    
    2,577
    
    
    
    6,004
    
    
    
    
    5,020Other
    
    
    193
    
    
    
    
    110
    
    
    
    298
    
    
    
    
    21738,659
    
    
    
    
    30,686
    
    
    
    83,452
    
    
    
    
    61,157ExpensesProduction expense
    
    
    4,839
    
    
    
    
    5,336
    
    
    
    10,427
    
    
    
    
    10,756Production taxes
    
    
    677
    
    
    
    
    761
    
    
    
    1,589
    
    
    
    
    1,495Gas gathering and marketing
    
    
    1,663
    
    
    
    
    2,313
    
    
    
    4,946
    
    
    
    
    4,419Exploration expense
    
    
    375
    
    
    
    
    983
    
    
    
    549
    
    
    
    
    1,935General and administrative expense
    
    
    2,231
    
    
    
    
    1,453
    
    
    
    5,427
    
    
    
    
    3,217Franchise, property and other taxes
    
    
    33
    
    
    
    
    45
    
    
    
    75
    
    
    
    
    99Depreciation, depletion and amortization
    
    
    9,308
    
    
    
    
    8,712
    
    
    
    18,725
    
    
    
    
    17,017Accretion expense
    
    
    304
    
    
    
    
    327
    
    
    
    596
    
    
    
    
    582Derivative fair value loss (gain)
    
    
    6,186
    
    
    
    
    (2,940
    )
    
    
    13,476
    
    
    
    
    3,27725,616
    
    
    
    
    16,990
    
    
    
    55,810
    
    
    
    
    42,797Operating income
    
    
    13,043
    
    
    
    
    13,696
    
    
    
    27,642
    
    
    
    
    18,360Other expenseInterest expense
    
    
    5,639
    
    
    
    
    5,945
    
    
    
    11,307
    
    
    
    
    11,775Gain on early extinguishment of debt
    
    
    (436
    )
    
    
    
    
    
    
    
    (436
    )
    
    
    
    Income before income taxes
    
    
    7,840
    
    
    
    
    7,751
    
    
    
    16,771
    
    
    
    
    6,585Provision for income taxes
    
    
    3,096
    
    
    
    
    1,776
    
    
    
    6,639
    
    
    
    
    1,246Net income
    
    $
    4,744
    
    
    
    $
    5,975
    
    
    $
    10,132
    
    
    
    $
    5,339
 2
      BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Successor Company
    
    
    
    Predecessor CompanySix months ended
    
    
    
    Six months endedJune 30, 2006
    
    
    
    June 30, 2005Cash flows from operating activities:Net income
    
    $
    10,132
    
    
    
    $
    5,339Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    18,725
    
    
    
    
    17,017Accretion expense
    
    
    596
    
    
    
    
    582(Gain) loss on debt extinguishment and disposal of property and equipment
    
    
    (436
    )
    
    
    
    51Amortization of derivatives and other noncash hedging activities
    
    
    4,075
    
    
    
    
    5,014Exploration expense
    
    
    549
    
    
    
    
    1,935Deferred income taxes
    
    
    6,639
    
    
    
    
    1,246Change in operating assets and liabilities, net of
effects of acquisition and disposition of businesses:Accounts receivable and other operating assets
    
    
    7,874
    
    
    
    
    2,935Inventories
    
    
    229
    
    
    
    
    (58
    )Accounts payable and accrued expenses
    
    
    (6,306
    )
    
    
    
    (617
    )Net cash provided by operating activities
    
    
    42,077
    
    
    
    
    33,444Cash flows from investing activities:Proceeds from property and equipment disposals
    
    
    3,320
    
    
    
    
    Exploration expense
    
    
    (549
    )
    
    
    
    (1,935
    )Additions to property and equipment
    
    
    (18,136
    )
    
    
    
    (14,788
    )Increase in other assets
    
    
    (18
    )
    
    
    
    (29
    )Net cash used in investing activities
    
    
    (15,383
    )
    
    
    
    (16,752
    )Cash flows from financing activities:Repayment of senior secured facility  term loan
    
    
    
    
    
    
    
    (500
    )Proceeds from revolving line of credit
    
    
    48,476
    
    
    
    
    Repayment of revolving line of credit
    
    
    (12,000
    )
    
    
    
    Repayment of
senior secured notes
    
    
    (33,933
    )
    
    
    
    Repayment of long-term debt and other obligations
    
    
    (22
    )
    
    
    
    (59
    )Settlement of derivative liabilities recorded in purchase accounting
    
    
    (16,706
    )
    
    
    
    (13,767
    )Dividends paid
    
    
    (12,000
    )
    
    
    
    Net cash used in financing activities
    
    
    (26,185
    )
    
    
    
    (14,326
    )Net increase in cash and cash equivalents
    
    
    509
    
    
    
    
    2,366Cash and cash equivalents at beginning of period
    
    
    8,172
    
    
    
    
    18,407Cash and cash equivalents at end of period
    
    $
    8,681
    
    
    
    $
    20,773
  3
      BELDEN & BLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 June 30, 2006
 
 (1) Change in Control, Merger and Basis of Presentation
     (2) Derivatives and Hedging
  4
      5
      Natural Gas Swaps
    
    
    Crude Oil SwapsNYMEX
    
    
    
    
    
    
    NYMEXPrice per
    
    
    
    
    
    
    PriceQuarter Ending
    
    Bbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    per BblSeptember 30, 2006
    
    
    2,829
    
    
    $
    5.22
    
    
    
    62
    
    
    $
    32.02December 31, 2006
    
    
    2,829
    
    
    
    5.39
    
    
    
    62
    
    
    
    31.715,658
    
    
    $
    5.30
    
    
    
    124
    
    
    $
    31.87Year EndingDecember 31, 2007
    
    
    10,745
    
    
    $
    4.97
    
    
    
    227
    
    
    $
    30.91December 31, 2008
    
    
    10,126
    
    
    
    4.64
    
    
    
    208
    
    
    
    29.96December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
 Bbl  Barrel
    
    Mmbtu  Million British thermal unitsMbbls  Thousand barrels
    
    Bbtu  Billion British thermal units
  (3) Industry Segment Financial Information
  (4) Supplemental Disclosure of Cash Flow Information
 Successor
    
    
    
    PredecessorCompany
    
    
    
    CompanySix months
    
    
    
    Six monthsended June 30,
    
    
    
    ended June 30,(in thousands)
    
    2006
    
    
    
    2005Cash paid during the period for:Interest
    
    $
    13,164
    
    
    
    $
    12,153Income taxes
    
    
    
    
    
    
    
    500Non-cash investing and financing activities:Non-cash additions to property and equipment
    
    
    4,218
    
    
    
    
    2,573
 (5) Contingencies
  (6) Dispositions
  6
      (7) Comprehensive Income
  Successor
    
    
    
    Predecessor ICompany
    
    
    
    CompanySix months
    
    
    
    Six monthsended June 30,
    
    
    
    ended June 30,2006
    
    
    
    2005Comprehensive income (loss):Net income
    
    $
    10,132
    
    
    
    $
    5,339Other comprehensive income (loss), net of tax:Unrealized gain (loss) in derivative fair value
    
    
    18,539
    
    
    
    
    (94,982
    )Reclassification adjustment for derivative loss
reclassified into earnings
    
    
    7,776
    
    
    
    
    6,554Change in accumulated other comprehensive income (loss)
    
    
    26,315
    
    
    
    
    (88,428
    )Comprehensive income (loss)
    
    $
    36,447
    
    
    
    $
    (83,089
    )
 (8) Related Party Transactions
    (9) Bond
Repurchase
  Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Forward-Looking Information
  7
      CRITICAL ACCOUNTING POLICIES
  Successful Efforts Method of Accounting
    Oil and Gas Reserves
  8
      
    
    the quality and quantity of available data;
    
    the interpretation of that data;
    
    the accuracy of various mandated economic assumptions; and
    
    the judgment of the persons preparing the estimate.
 Capitalization, Depreciation, Depletion and Impairment of Long-Lived Assets
      Derivatives and Hedging
  9
      Revenue Recognition
  10
      Asset Retirement Obligations
  Results of Operations
    Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005ProductionGas (Mmcf)
    
    
    3,487
    
    
    
    3,648
    
    
    
    7,024
    
    
    
    7,211Oil (Mbbls)
    
    
    91
    
    
    
    95
    
    
    
    189
    
    
    
    177Total production (Mmcfe)
    
    
    4,035
    
    
    
    4,216
    
    
    
    8,160
    
    
    
    8,275Average
price (1)Gas (per Mcf)
    
    $
    8.65
    
    
    $
    6.70
    
    
    $
    9.29
    
    
    $
    6.85Oil (per Bbl)
    
    
    66.36
    
    
    
    37.75
    
    
    
    62.80
    
    
    
    36.99Mcfe
    
    
    8.98
    
    
    
    6.64
    
    
    
    9.45
    
    
    
    6.76Average costs (per Mcfe)Production expense
    
    $
    1.20
    
    
    $
    1.27
    
    
    $
    1.28
    
    
    $
    1.30Production taxes
    
    
    0.17
    
    
    
    0.18
    
    
    
    0.19
    
    
    
    0.18Depletion
    
    
    2.24
    
    
    
    1.91
    
    
    
    2.23
    
    
    
    1.90Operating margin (per Mcfe)
    
    
    7.61
    
    
    
    5.19
    
    
    
    7.98
    
    
    
    5.28
 (1)
    
    The average prices presented above include non-cash amounts
related to purchase accounting for the Merger and the Transaction.
Excluding these non-cash amounts from oil and gas sales revenues
would result in the following average prices:
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gas (per Mcf)
    
    $
    5.90
    
    
    $
    5.74
    
    
    $
    6.19
    
    
    $
    5.71Oil (per Bbl)
    
    
    66.36
    
    
    
    36.23
    
    
    
    62.80
    
    
    
    35.25Mcfe
    
    
    6.60
    
    
    
    5.78
    
    
    
    6.78
    
    
    
    5.73
 Mmcf  Million cubic feet
    
    Mbbls  Thousand barrels
    
    Mmcfe  Million cubic feet of natural gas equivalentMcf  Thousand cubic feet
    
    Bbl  Barrel
    
    Mcfe  Thousand cubic feet of natural gas equivalentOperating margin (per Mcfe)  average price less production expense and production taxes
 Results of Operations  Second Quarters of 2006 and 2005 Compared
 Revenues
   11
      Costs and Expenses
     12
      Results of Operations  Six Months of 2006 and 2005 Compared
 Revenues
    13
      Costs and Expenses
       14
      Liquidity and Capital Resources
 Cash Flows
      Capital Expenditures
   15
      16
      Item 3. Quantitative and Qualitative Disclosures About Market Risk
    17
      Quarter Ending
    
    Natural Gas Swaps
    
    
    Crude Oil SwapsNYMEX
    
    
    
    
    
    
    NYMEXPrice per
    
    
    
    
    
    
    PriceBbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    per BblSeptember 30, 2006
    
    
    2,829
    
    
    $
    5.22
    
    
    
    62
    
    
    $
    32.02December 31, 2006
    
    
    2,829
    
    
    
    5.39
    
    
    
    62
    
    
    
    31.715,658
    
    
    $
    5.30
    
    
    
    124
    
    
    $
    31.87Year EndingDecember 31, 2007
    
    
    10,745
    
    
    $
    4.97
    
    
    
    227
    
    
    $
    30.91December 31, 2008
    
    
    10,126
    
    
    
    4.64
    
    
    
    208
    
    
    
    29.96December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
 Bbl  Barrel
    
    Mmbtu  Million British thermal unitsMbbls  Thousand barrels
    
    Bbtu  Billion British thermal units
  18
      Item 4. Controls and Procedures
  
    
    our disclosure controls and procedures were effective in ensuring that information
required to be disclosed by us in the reports we file or submit under the Securities
Exchange Act of 1934 was recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms; and
    
    our disclosure controls and procedures were effective in ensuring that material
information required to be disclosed by us in the report we file or submit under the
Securities Exchange Act of 1934 was accumulated and communicated to our management,
including the Chief Executive Officer and the Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
 Internal Controls Over Financial Reporting
  PART II OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 1A. Risk Factors
  Item 4. Submission of Matters to a Vote of Security Holders.
  19
      Item 6. Exhibits
  31.1*
    
    Certification of Principal Executive Officer of Belden & Blake Corporation as required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 193431.2*
    
    Certification of Principal Financial Officer of Belden & Blake Corporation as required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 193432.1*
    
    Certification of Chief Executive Officer of Belden & Blake Corporation pursuant to 18 U.S.C.
Section 1350.32.2*
    
    Certification of Chief Financial Officer of Belden & Blake Corporation pursuant to 18 U.S.C.
Section 1350.
  20
      BELDEN & BLAKE CORPORATIONDate:
August 14, 2006
    
    By:
    
    /s/ Mark A. HouserMark A. Houser, Chief Executive Officer,
Chairman of the Board of Directors and DirectorDate:
August 14, 2006
    
    By:
    
    /s/ James M. VanderhiderJames M. Vanderhider, President, Chief
Financial Officer and Director (Principal
Financial Officer)
 21